Some economists and market participants believe the Federal Reserve needs to speak more directly to a bond market that has seen yields surge amid uncertainty about the monetary policy outlook.
Treasury yields shot higher last week, and higher long-term interest rates in theory could create unwanted headwinds to growth as the economy recovers from the coronavirus pandemic.
Fed officials including New York Fed leader John Williams have said that rising yields are consistent with what appears to be a strong path of recovery and that they see no need for the central bank to respond.
Rising yields are “driven by a more positive outlook for the economy…and maybe, you know, a more stabilized view of inflation versus where we were before,” Richmond Fed leader Thomas Barkin said last week. Separately, Atlanta Fed leader Raphael Bostic last week said he isn’t worried and that “I’m not expecting that we’ll need to respond in terms of our policy.” Messrs. Williams, Barkin and Bostic hold votes on the rate-setting Federal Open Market Committee.
Lots of market participants don’t think that rhetoric will continue to fly, and some believe this is the week for officials to change their story. A number of Fed officials will make public appearances this week, including Fed governor Lael Brainard and San Francisco Fed leader Mary Daly on Tuesday, Chicago Fed leader Charles Evans on Wednesday, and Fed Chairman Jerome Powell on Thursday. All these officials have FOMC votes as well.
